Pre-FED anxiety is the mood today as markets await the key interest rate decision from the U.S
Dollar
The Greenback rolls into midweek trading at a monthly low (102.82) ahead of a big day for the US economy. Factors driving this disinterest from buyers of the US currency can be attributed mainly to the pre-FED anxiety that is generally seen in markets ahead of today’s Interest Rate decision.
Following a five-day downtrend since the recent banking crisis, potential buyers of the currency will be looking for any hawkish undertones from the FED today, as well as any clues relating to how close the FED are to a policy pivot, despite the overarching expectation of a more dovish stance. As it stands, the balance of probability would have the FED raise rates by 25 basis points later in today’s FOMC monetary policy meeting.
Technical Analysis (D1)
In terms of market structure, Current Price action has formed a potential reversal pattern in the form of a descending channel. The pattern has been partially validated as an impulsive break of structure continues to move to the upside as bulls take control of the narrative. Henceforth price could remain bullish if buyers can defend the potential bull flag continuation pattern that is currently being formed. Conversely, if sellers break through the above-mentioned support level around the 102.09 level, the narrative could shift towards the bears and challenge the low of the year.
Euro
The Euro continues to build on the gains seen since mid-February as it trades at a one-month high ahead of today’s FOMC decision. Factors that have been driving the recent exuberance seen in the European common currency can be attributed to the increase in the risk sentiment that has characterised the month of March, and this decreased inflow towards the US Dollar has benefitted the Euro.
Currently the Dollar remains mostly depressed against the Euro, however, fresh directional impetus will most likely be gained when the FED makes their interest rate decision. The expectation is that the FED will decrease their hawkish stance on the back of the ongoing turmoil in the banking sector, which would benefit buyers of the Euro, especially if any inclination of rate cutting is given for the second half of the year.
Technical Analysis (D1)
In terms of market structure, Current Price has approached an area with sell side pressure in the form of an ascending channel, which gives bears the possibility of driving price if the current bear flag continuation pattern plays out successfully. Conversely if the bulls can sustain the pressure, price could break above the level and continue the uptrend if it invalidates the resistance area in an impulsive wave.
Pound
The Pound heads into the middle of the week building on the gains for the month, as it trades near highs last visited in February. Factors driving this renewed buying interest in the British currency can be linked to a stronger CPI report, which showed inflation having risen by 1.1% last month. The data will undoubtedly influence how the BoE will approach their interest rate decision on Thursday, and this has caused markets to price in a 25 basis point rate hike, which has pleased the bulls and added to the exuberance seen this month.
Looking ahead, fresh directional impetus will mainly be driven by dollar dynamics, as investors await today’s FED rate decision. The importance of the post-meeting press conference cannot be understated, as investors will be analysing the accompanying policy statement and updated economic projection for the year for any clues about the trajectory of future rate hikes.
Technical Analysis (D1)
In terms of market structure, the bulls have been in control of the narrative and price has tested the key 1.244 level and has since pulled back forming a potential bearish double top. As price retests this peak formation again, two scenarios present themselves. Namely, If the area is defended by sellers in this current bear flag continuation pattern it could result in the potential reversal pattern being validated. Conversely, if buyers break above the area, price will continue to remain bullish in the near term.
Gold
Gold heads into the middle of the week retreating from highs last visited in March 2022 around the $ 2 011 level. Factors that have been driving the bullish trend can mostly be linked to dollar dynamics, and the recent banking crisis has only exacerbated the in-flows to the yellow metal, causing it to reach levels close to the all-time high located around the $ 2 076 level.
Looking ahead, the FED’s interest rate decision will play a big role in how Gold continues to trade. Traditionally a more hawkish approach tends to strengthen the Dollar and weaken Gold, so traders could see an initial sell-off of these high levels. However, one must be cognizant of the nuances today. The fact that signs are showing that things in the real economy are beginning to break as a result of the high interest rates, indicate that aggressive monetary policy would be detrimental to the Dollar as it would introduce more risk into the system, which the FED is likely to try and avoid.
Technical Analysis (D1)
In terms of market structure, price action has been mostly bullish, with clear higher-highs and higher-lows being printed out. Current price action has just printed out an impulsive wave, confirming the reversal pattern in the form of a descending channel and the W-formation intersecting the adjoining uptrend. Henceforth price is likely to remain bullish if it keeps being supported by the new uptrend that has formed.
Click here to access our Economic Calendar
Ofentse Waisi
Financial Market Analyst
Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.